Thursday, December 30, 2010

The weekly Baker Hughes rig count showed a 20 rig decrease in the U.S., dropping to 1,694. Gas rigs dropped 12 to 919, oil rigs decreased by six to 765 and miscellaneous rigs were down two to 10. By type, horizontal rigs were down 12, vertical rigs down 11 and directional rigs up three.

In the Haynesville region, inclusive of other formations, the rig count decreased by three to 179. The count was up two in N. Louisiana to 123 and down five in east Texas to 56.

The detailed Haynesville Shale rig count should be available Friday, as I am on the road today and can't work on it until tonight.

The weekly EIA working gas in storage report showed a 136 Bcf decline to 3.232 Tcf. The weekly net withdrawal was slightly greater than last year's (-130 Bcf) and the five year average (-118 Bcf). The current storage level is 62 Bcf below (-1.9%) last year's level but 246 Bcf higher (+8.2%) than the five year average.

Wednesday, December 29, 2010

It has become a tradition in all media to roll out a year-end top 10 list of big stories for the past year. As much as I try to eschew other people’s traditions, I find it to be a worthy exercise to look back at the year to try to discern larger trends. I’ve tried to do that below with a focus on the stories and trends that impacted the Haynesville Shale to the greatest degree. While the news around the play hasn’t been all that great this year, there is some good news in the larger trends.

10. Restricted choke size practice gains traction. The practice of flowing wells with lower choke sizes (i.e. 14 or 16/64” vs. 22 or 24/64”) has taken hold for some operators, most notably Petrohawk, which is using the technique on nearly every new well now. The theory is that narrower chokes will lead to less steep decline rates and better overall gas recoveries from the formation. Proponents say that the cumulative recoveries with lower flow rates actually catch up with “normal” wells in +/- seven months because of the improved decline curve.

9. CNG continues to make progress. Compressed natural gas is slowly making inroads throughout the country as fleets are slowly adding NG vehicles and subsequently CNG fueling infrastructure. I’m not sure which is the chicken and which is the egg, but progress towards natural gas vehicles is real, albeit slow.

Over the past year, Petrohawk Energy has been selling nearly all of its "non-core" assets and, with the sale of half its Haynesville gathering pipeline, some relatively key assets. Last week, the company disclosed that it has agreed to sell its Fayetteville Shale assets to Exxon/XTO Energy for $650 million.

We've reported a number of similar sales over the past year. The goal of these sales is two-fold: one, to allow the company to focus on its key assets, the Haynesville and Eagle Ford Shales; and two, to fund capital expenditures to drill in these plays without borrowing money or diluting shareholders. The strategy makes some sense if you can buy low/sell high, but it can be like giving money to a junkie if management has a history of overspending on projects that do not yield sufficient future cash flow. I'm not saying that is the case, but asset sales can be dangerous for a company because it is risky to sell future cash flow that would have supported existing operations and debt.

In the case of the Fayetteville Shale, Petrohawk operated one rig in 2010 but planned to drop it in 2011. The company was to participate in 311 non-operated wells, which were expected to consume $100 million of 2011 capex.

Friday, December 24, 2010

Christmas is my favorite time of year. As I've grown older, I've become stoic about most holidays, but not Christmas. I've long said that I can listen to Christmas music all year 'round (although the chestnuts stop roasting on the open fire around 8 p.m on the 25th). Maybe it is just the warm memories of my youth. My parents made Christmas special for my sister and me and I have very strong memories from nearly every past Christmas.

Fast forward to today. I now have two little ones and I am keen on creating those same good memories in them. But dealing with the various stresses of Christmas - shopping, wrapping, cooking, traffic, holiday guests, etc. - I can understand why some people just aren't as fond of the season as I am. The holiday noise level has escalated big time over the past several years. Selfishly, I keep wanting to stop and shout, "what about me!?!" (Fortunately, I've learned to keep my mouth shut at those times.)

But what I've come to realize is that these holidays are what you make of them. Everyone has a different set of traditions and it is important that we respect these differences in celebrating our own. To that end, I wish you all a Merry Christmas - in whatever form it may take.

The weekly EIA working gas in storage report showed a 184 Bcf decrease, bringing the storage level down to 3.368 Tcf. The EIA also announced that last week's storage level was misstated on the high end and was revised to be 9 Bcf lower. The current stats reflect the revision. The weekly withdrawal was higher than last year (-172 Bcf) and the five year average (-136 Bcf). Current levels are 1.6% below last year's record level and 8.5% above the five year average.

GMX Resources announced that it has reduced its 2011 capital budget to $110 million. This is the third time that the company has reduced its planned capex, from $200 million to $175 million to $152 million and now to $110 million. For reference, GMX expects 2010 capex to come in at between $195 and $200 million. The company plans to operate only one rig in 2011. If market conditions improve, the company may add another rig mid-year, which would increase capex by $40 million.

The capex reduction occurred simultaneously with a redetermination of the company's borrowing base, which set GMX's borrowing limit at $130 million (of a $250 million facility). GMX, like many other companies that depend on debt to fund growth, constantly has to watch its borrowing base, especially when operations don't generate strong cash flows because of low commodity prices. The capital budget presumably will be funded by a recent preferred stock offering, debt and excess cash flow.

The company also announced results from some recent completions that I have yet to note:

The weekly Baker Hughes rig count showed a five rig increase in the U.S., bringing the count up to 1,714. Oil rigs increased by 15 to 771, the largest number of oil-based rigs since at least 1987 (I'm too lazy to research before '87), while gas rigs decreased by 10 to 931. Miscellaneous rigs held at 12. By type, vertical rigs were up 11 and horizontal rigs were up five, while directional rigs were down 11.

In the Haynesville Shale region, inclusive of other formations, the rig count was down by two to 182. There was one new rig working in east Texas (61) and three fewer in north Louisiana (121).

The detailed Haynesville Shale rig count should be available late this afternoon or tomorrow.

SM Energy, formerly St. Mary Land & Exploration, announced today that it will spend $1.08 billion on capital expenditures in 2011. Of that total, $830 million will be spent on drilling. The company will focus on the Eagle Ford Shale (60% of drilling budget) and Bakken Shale (20%) next year. Only 4% of the drilling budget, or $35 million, will be spent on the Haynesville Shale. That budget will allow SM to drill five gross operated wells and participate in 20 gross (2 net) wells.

Buuuuuuut...SM's Haynesville budget does not provide enough funding to enough to hold the company's 22,000 net Haynesville acres. Here's what they say:

"SM Energy is currently exploring a number of options for its operated Haynesville shale acreage position in East Texas which would allow the Company to drill enough wells in 2011 and early 2012 to hold its existing acreage while minimizing the amount of capital deployed. Twelve (12) gross wells in 2011 in addition to the operated wells discussed above and eight (8) gross wells in 2012 would need to be drilled to hold the Company's acreage position."

Tuesday, December 21, 2010

The Louisiana Mineral Board held a relatively uneventful monthly lease auction last week - uneventful, at least, from the perspective of the Haynesville Shale. Only 85 acres were leased in the sale, half in Sabine Parish, half in Bienville Parish. Two of the smaller parcels were in sections that are not currently subject to a unit but are nearby other units. A few larger lease parcels in Caddo and DeSoto did not receive bids and two of the other parcels in Sabine (S25,30/T9/R10,11 and S28/T9/R11) were held back because the winning bids ($3,500/acre bonus) were rejected as insufficient.

The average bonus was $5,452, but the weighted average was $6,788, as shown below. All of the winning bids

Goodrich Petroleum announced its 2011 capital budget last week. The company will spend $225 million in total, a reduction of $30 million from 2010. Goodrich does not expect to have to borrow to fund the plan, as the funds will be sourced from cash flow and $70 million of expected "non-core asset" divestiture proceeds (although I tend to view asset sales sort of like mortgaging the future).

Goodrich will spend $90 million to develop the Haynesville Shale next year, $60 million in the Shelby Trough in Texas and $30 million in north Louisiana. The company also expects to spend $22 million across its platform on leasehold acquisitions and infrastructure, but I don't suspect that much of that money will be spent in the Haynesville area, as Goodrich is intent on advancing its currently less well developed Eagle Ford Shale prospects.

Monday, December 20, 2010

Going in, I had very low expectations for a trip to the shopping mall several days before Christmas, but at least I knew my son and I could spend an hour watching the model railroad trains set up in the atrium. This year, I was horrified to see an underlying coal theme in the train vignettes! Yep, that's a coal train chugging along below.

A big train tugged coal cars around the snowy mountain and there were several large piles of coal on the snow, including one next to a house. The only thing missing were mountains with their peaks sheared off, slag heaps and tailings ponds.

Saturday, December 18, 2010

News came yesterday that Carl Icahn increased his ownership of Chesapeake Energy from 2.5% to 5.8% and now "seeks talks" with the company. Icahn is best remembered as a corporate raider from past decades who now plays the euphemistic role of "activist investor," aiming to buy into undervalued companies and "maximize shareholder value."

Pardon the "excess quotation marks" above, but activist investors can be a mixed bag and I tend to view them with one eyebrow raised because they can sometimes cause a company to make short-sighted decisions that help the investor make a quick profit but don't always benefit the long-term holders of the company.

One thing is for certain, Icahn will not be a passive investor. Likely more of a burr under the saddle, in fact. Interestingly, Icahn agreed last week to buy utility Dynegy, a company that uses lots of gas (and a bunch of coal too) but has been burned (pun unintended) by low gas prices of late. Interesting coincidence?

Friday, December 17, 2010

The weekly Haynesville Shale rig count showed a two rig net increase in the play, rising by three rigs in Louisiana (114) and falling by one in Texas (45). Both moves reverse (at least temporarily) recent trends in each state.

The weekly Baker Hughes rig count showed a 14 rig decrease to 1,709 working rigs in the U.S. The number of oil rigs (756) and gas rigs (941) both decreased by seven, while the number of miscellaneous rigs (12) was unchanged. By type, horizontal rigs were down 12, directional rigs were down five and vertical rigs were up three.

In the Haynesville region, exclusive of other formations, the rig count increased by five to 184. North Louisiana (124) gained five rigs, while east Texas (60) was unchanged.

The detailed Haynesville Shale count will be completed later this afternoon.

Thursday, December 16, 2010

The Wall Street Journal reported yesterday that the big purveyors of hydraulic fracturing fluid are introducing frac fluid with more benign ingredients. Halliburton has introduced CleanStim, Baker Hughes has launched BJ SmartCare and Flotek Industries has a product made from citrus products. Halliburton says its product will be more expensive than regular frac fluid until companies start buying it in greater quantities (or, realistically, until customers start buying environmentally friendly frac fluid from the company's competitors).

The chemicals involved in the new formulations include the above mentioned citrus products, mineral oil, maltodextrin and organic ester, among many others. A Halliburton spokesman said, "The same components to make this stuff are used to make ice cream and beer." Mmmm, beer.

A representative of the Environmental Working Group sounded unimpressed with the new formulations, saying that he was actually more concerned that fracking could allow natural gas condensates to penetrate aquifers. Funny, I thought the "poisonous" fluid was the big issue. Sounds like the EWG spokesman now needs a refresher in basic physics. I was more concerned that he was going to be outraged that adding ingredients used in processed foods to frac fluid would make the earth fat.

Comstock Resources today announced its 2011 capital budget of $522 million for drilling and exploration that will be split between the Haynesville Shale and the Eagle Ford Shale. The company plans to drill 45 gross wells (27.5 net) in the Haynesville Shale this year and spend $110.2 million of the $522 million budget to pay a dedicated completions crew to complete the company's inventory of 25 Haynesville wells (21.6 net) drilled but not completed in 2010.

The company currently operates six rigs, including five in the Haynesville Play. It will drop one of the rigs (presumably in the Haynesville) in the first quarter of 2011 and move one of the Haynesville rigs to the Eagle Ford mid-year. (Comstock plans to drill 22 wells in the Eagle Ford in 2011.) The implication is that by the third quarter Comstock will only operate three rigs in the Haynesville Shale as the company shifts its attention to the liquids-rich Eagle Ford.

The weekly EIA working gas in storage report showed a 167 Bcf net withdrawal, bringing the gas in storage level to 3.561 Tcf. The weekly withdrawal falls between last year's (-186 Bcf) and the five year average (-153 Bcf). The current storage level is 35 Bcf lower than last year's (record high) level but 321 above the five year average.

Temperatures across the country were 5.3 degrees below normal and 1.6 degrees below this week last year, with the largest negative variance reported in the South Atlantic region, where the average temperature was 12.1 degrees below normal, yielding 53.4% more heating degree days than normal.

If there was any doubt that winter weather would come, yesterday's video of the Minneapolis Metrodome's roof collapsing under the weight of snow should make everyone forget about a warm autumn.

With the first big cold snap of the year, the price of natural gas at the New York Citygate more than doubled in one session, jumping $6.32 to $12.31/MMBtu. The spot price at Henry Hub increased 4.2% to $4.52/MMBtu, the highest price since August 9. The price is still 19.4% lower than this week last year, but at least it finally is headed in the right direction.NFL on FOX: Metrodome collapse

This comes amid management's attempted buyout of the company. Ross says that his actions are the result of his belief that natural gas prices will rise, but given the timing, one wonders if a little merger arbitrage isn't on his mind as well.

Friday, December 10, 2010

The Haynesville Shale rig count continued to decline this week, dropping by two rigs to 157. The count increased by one in Texas to 46 and dropped by two in Louisiana to 111. This change echoed the recent pattern where the net rig count has decreased but the decline is mostly felt in Louisiana, while Texas is seeing a small increase in rigs. Looking back a couple of months to October 1, the Haynesville Shale rig count has decreased by 11 rigs. Louisiana dropped 14 rigs, while Texas added three rigs. The table below shows the change. It' s not dramatic, but it is an interesting trend.

The charts for each state are below. Note that Sun River Operating, which is working a farm-out from Devon, is drilling its first rig in Panola County, TX.

The Baker Hughes U.S. working rig count continues to climb, increasing by ten this week to 1,723. Oil rigs were up 21 to 763, their highest level since at least 1987 when my data starts. Gas rigs were down 13 to 948, and miscellaneous rigs were up by two to 12. By type, directional rigs were up by seven and vertical rigs were up by three, while horizontal rigs were unchanged.

In the Haynesville Shale region, inclusive of other formations, the rig count dropped by five to 179, its lowest level since December 18, 2009. Rigs in north Louisiana decreased by four to 119 and rigs in east Texas decreased by one to 60.

The detailed Haynesville Shale rig count should be available later this afternoon.

There is little information as to what specific types of vehicles Chrysler might make, but the company has indicated that it understands that fleet vehicles will be a better match for the U.S. market right now. Because Fiat is one of largest makers of light duty natural gas passenger vehicles in the world, it is not a huge surprise that Chrysler is talking natural gas instead of plug-in electric. Ultimately I expect to see Chrysler make natural gas passenger vehicles for the U.S. market.

I think this is a very smart move. Natural gas vehicles will be cheaper than plug-in electrics and will ultimately be cleaner to use. They generally have a longer range and can be fueled faster. They are also not dependent on batteries. Electric cars sound great, but when you have to plug into a grid fueled by COAL, you are worsening pollution and CO2 output, not improving it.

Gobi had a 4,400 foot lateral with 14 frac stages. Under a restricted choke, it had a pressure of 9,400 psi. A previous nearby Mid-Bossier completion, Grizzly #1 (#691612), has been flowing for four months and is still producing at a rate of 7.3 MMcf/day with flowing tubing pressure of 6,524 psi on a 15/64" choke. Cumulative production for Grizzly over that four month period has been just over 1 Bcf.

Two more Mid-Bossier wells are nearing completion. The Halbert Trust #1 (#694989, operated by Eagle O&G) has been fracked and is expected to have initial production by late December. The Bengal #1 (#700622) has been drilled with a 4,400 lateral. Crimson expects completion to commence in January 2011. Gobi and Grizzly are in the Bruin Prospect Area, Halbert is in the Fairway Farms Prospect Area and Bengal is in the Tiger Prospect Area.

The weekly EIA working gas in storage report showed an 89 Bcf decrease, bringing the level of gas in storage to 3.725 Tcf. The weekly withdrawal was greater than last year's (-57 Bcf) and the five year average (-74 Bcf). Current storage levels are 1.5% below last year's level (-57 Bcf) but still 9.8% higher than the five year average (+332 Bcf).

Low temperatures drove the higher than average withdrawal, as the week's temperatures were 5.1 degrees below last year's and 1.9 degrees below normal.

Wednesday, December 8, 2010

Add Argentina to the list of countries with potential shale gas reserves. Yesterday, YPF, a subsidiary of Spain's Repsol, announced that it had discovered 4.5 Tcf of shale gas in the Loma de la Lata Field in the Patagonian province of Neuquen. The government had previously hinted that the prospect could be as large as 257 Tcf, but that is unproven.

This is big news for Argentina, which has become a net gas importer. There are questions about the find's economic viability, but it is a big deal in a country that hasn't seen much new gas production of late.

Interestingly, the Argentine announcement had a very American flavor. The announcement was timed to coincide with a public offering of YPF's stock, not unlike the timing of Chesapeake Energy' "discovery" of the Haynesville Shale and its own financing efforts in March 2008.

I guess next steps are for Repsol or YPF to make a minority investment in an American producer's shale gas field. I'm sure Chesapeake has approached both companies with investment packages by now.

Some deals will be aimed at consolidation, a natural activity in a cyclical industry like energy because as heft aids survival in bad times (see: AGL Resources acquisition of Nicor in the natgas distribution industry). But I'm talking about growth investments, especially with outside financial sponsors. While we may not see as many blockbuster shale deals from multi-national firms looking to get into North American shale, I think we will continue to see a range of transactions from buyouts to farm-outs to joint ventures as natural gas assets remain undervalued relative to their potential future value.

Friday, December 3, 2010

The weekly Haynesville Shale rig count was unchanged at 158. A two rig decrease in Louisiana netted out a two rig gain in Texas. The Louisiana count has been steadily dropping since it peaked in late July at 136. The Texas count peaked at 52 in early July, but 45 rigs is the highest level since late October.

The Baker Hughes weekly rig count for the U.S. jumped by 26 to 1,713, the highest level since December 26, 2008. Oil rigs increased by 18 to 742 and gas rigs increased by 8 to 961. Miscellaneous rigs held steady at ten. By type, horizontal rigs were up 18, vertical rigs up six and directional rigs up two. Horizontal rigs now represent 56.4% of domestic rigs deployed, a record high level.

The rig count in the Haynesville region, inclusive of other formations, was up by three to 184. North Louisiana held steady at 123 while east Texas was up three to 61.

I hope to have detailed Haynesville Shale rig counts by late afternoon, but I am out west this weekend and it might be later than usual.

Thursday, December 2, 2010

The weekly EIA working gas in storage report showed a 23 Bcf decrease to 3.814 Tcf. The current level is 23 Bcf (-0.6%) lower than last year's storage level and 347 Bcf (+10.0%) higher than the five year average. The weekly withdrawal was far better than last year (a 2 Bcf injection) but not as good as the five year average (36 Bcf withdrawal).

The weekly changes reflected regional temperatures, which were 1.7 degrees warmer than normal but 3.0 degrees cooler than last year. Temperatures in the East Region, which has the largest storage capacity and usually drives the withdrawals in the cold months, were actually warmer than normal last week. Storage across the Producing Region actually increased for the week.

It's Been a Gas...

As of 12/31/15, I have stopped updating the Haynesville Play site on a regular basis. I will occasionally post items I find interesting, but I will no longer maintain the data or keep the news current. The site will remain up as an historical archive and a home for occasional musings.

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About Me

My goal is to compile a real-time historical record of the development of the Haynesville Shale.
There is so much going on at any one time that impacts the Haynesville Shale. I weed through the information and summarize the important points.
I look at the micro-trends, such as drilling results and drilling rig activities, focusing on the who, what and where. I also concentrate on the macro-trends that will impact the future of the Haynesville Shale, including the supply/demand issues, the market for natural gas and trends that impact the gas industry as a whole.